Falcone may continue on as chief executive and chairman of his firm Harbinger Capital but can’t make investment decisions

A once high-flying hedge fund billionaire, who made a fortune betting against the housing market, has agreed to an $18m settlement with US regulators that will effectively bar him from the financial services industry.

Philip Falcone and his firm Harbinger Capital announced Thursday that they had reached an agreement to settle charges with the Securities and Exchange Commission (SEC) of market manipulation and that he misused customer funds to pay his taxes. He was also accused of favouring certain clients over others.

According to a regulatory filing, Falcone agreed to a two-year bar from acting as an investment adviser. Falcone may continue to act as chief executive and chairman of Harbinger but cannot make investment decisions, according to the filing.

Harbinger is also prohibited from raising new funds for the two-year period. The company must take “all actions reasonably necessary to expeditiously” return money to investors wishing to exit Harbinger Capital funds.

The agreement was reached with the regulator last month but has yet to be approved by the SEC’s five-member commission. The agreement would also need court approval. After the two years are up, Falcone can seek approval from the SEC for the ban to be overturned.

The settlement is a major setback for Falcone, who last year vehemently denied accusations of wrongdoing, including the use of investors’ money to fund his own “lavish lifestyle”. The SEC filed three separate complaints against Falcone, accusing him in one of obtaining a $113.2m loan from one of the firm’s hedge funds to pay his personal taxes. The regulator charged that the loan was made even as Harbinger was preventing other investors from withdrawing money from the hedge fund.

The loan “allowed Falcone to continue his lavish lifestyle,” according to the complaint, including “extensive renovations on his Manhattan townhouses” and a “private jet, a security detail, and motion picture investments.”

The hedge fund billionaire made billions betting against the boom in sub-prime mortgages but has subsequently lost a fortune on LightSquared, a wireless startup that went bust after the government blocked its plans to roll out a 4G mobile network.

Falcone, who briefly played professional hockey in Sweden, still has a fortune estimated to be worth $1.3bn, and has moved on to private equity investments in companies such as Spectrum Brands, which owns consumer products ranging from the Stanley hardware company, Rayovac Batteries and George Foreman grills.